German TV Poised to Dominate Europe.

Similar to the American multimedia market that seems to be dominated by two powerful corporations, AOL-Time Warner and AT&T, Germany is guided by two industry giants: Bertelsmann and the KirchGruppe.

After years of negotiations with both rivals, Kirch and Bertelsmann, Rupert Murdoch finally entered the German market by buying a 24 percent stake in Kirch's digital pay-TV venture Premiere, which includes a controlling vote on the board. In exchange, Leo Kirch received a 4.3 percent stake in Murdoch's British pay-TV platform BSkyB. The European Commission blessed the deal with only minor restrictions, mostly in the technological area. Since Kirch virtually has a monopoly on German pay TV -- which earned him the moniker "Citizen Kirch" in the German press -- the European Commission requires open access to its digital platform for all providers of digital services and content, including Germany's still-powerful public broadcasters.

But Murdoch's deal wasn't good news for everyone. Right after the agreement with Kirch was closed, he withdrew TM3's rights to air the German soccer Champions League and relocated the sports program onto his new pay-TV platform.

Murdoch had bought a majority stake (66 percent) in the women's channel TM3 in 1998 in order to get a foothold into the German market. Murdoch recently purchased the remaining 34 percent from his minority partner Herbert Kloiber, who was hardly able to keep up the money-losing venture himself. It is widely speculated that Murdoch will transform TM3 into a fitness channel like one he already has in the U.S.

The Vienna-born Kloiber and his company Tele Muenchen tried to make a difference when he built TM3 on cable TV. He got even stronger when he formed an alliance with the children's content provider EM.TV, which acquired 45 percent of Kloiber's company (Tele Muenchen) and financed the expensive venture through a public offering last fall. Their chairman Thomas Haifa wanted nothing less than to make the jump into the "world league." EM.TV is also big in merchandising as well as film production. But the two original giants, Kirch and Bertelsmann, aren't quite ready to give up their dominance and are trying to maintain their position with the help of international alliances and heavy investments in digital technologies.

Despite the backlash, Kloiber keeps pushing further. At the MIP program fair in Cannes, he announced a creative alliance with Carlton International for co-productions.

After Kloiber's main contractor, Pro Sieben, was integrated into Kirch's empire, his chances for gaining more power have become extremely limited. His only chance is to brush up business with Bertelsmann, which has access to other content resources.

Bertelsmann merged its commercial broadcaster CLT-UFA with the British Pearson Group to create a content giant that for the first time could actually compete with the big U.S. networks. Bertelsmann is also focusing on the development of Internet television. Their new head, Thomas Middelhoff, wants to be able to sell all kinds of Bertelsmann properties, such as books, magazines, music and film, over the web. The newly-formed Bertelsmann Broadband Group intends to buy Deutsche Telekom's cable network in order to transmit its programs over high-speed Internet connections.

Contrary to Kirch, Bertelsmann decided last year to pull our of the pay-TV business almost entirely, reasoning that pay TV would develop much slower than expected. Only 5.5 percent, or 2.1 million, of all German TV-households have subscribed to Premiere's pay-TV service. Because the European Union twice prohibited a pay-TV alliance among Kirch, Bertelsmann and the phone and cable giant Deutsche Telekom, Bertelsmann felt its business development inhibited by the authorities. Bertelsmann manager Rolf Schmidt-Holtz called this an incomprehensible decision through which "an important amount of time was lost." Instead, Bertelsmann is emphasizing its powerful "family of channels" around the commercial free-TV station RTL, the most profitable in Europe.

Kirch has stabilized his free-TV business only a few months ago by merging SAT1, Pro Sieben, Kabelkanal, DSF and N24 into his own "family of channels." But though Kirch has a strong liasion with Italy's media mogul Silvio Berlusconi, his international ventures aren't running quite as smoothly as Bertelsmann's. In December Kirch got caught up in a legal fight with Universal Studios. He sued Universal because it hadn't kept up with a contract to deliver a certain amount of movies and TV series for the German pay-TV platform. "We are no longer [able] to accept a breach of contract and the erosion of the programming agreement," Kirch spokesman Johannes Schmitz said after the announcement. Universal answered with another lawsuit, blaming Kirch for not fulfilling his obligations to market the programs properly. Other Premiere partners, like the Discovery Channel and Frances Multithematique, had also complained in the past about nor receiving enough advertising for their productions.

Recently, a "new third power" tried to get attention in the German media circus. The Munich-based film distributor Kinowelt tried to take over Kloiber's stake in TM3 (now with Murdoch), bought a couple of production and animation studios and even planned to build a new free-TV channel that is likely to fail in this saturated market. Kinowelt's fate might be close to Kloiber's -- when it comes to inter-Feting with the big guys, the big guys might end up picking up the pieces that are left over.